Cryptocurrencies Help Stabilize Economies

Cryptocurrency has been a controversial solution to the economic problems several developed and developing countries are facing. Here we discuss both the risks and opportunities blockchain technologies bring.

The Bitcoin Argument

Even the “mere mention of Bitcoin evokes mixed response[s] among seasoned economists” according to NewsBTS. There are those who call Bitcoin revolutionary, while others discredit its potential, calling it a “giant pyramid scheme”.

According to Crypto Coin News, the Venezuelan government “suddenly, unilaterally, [and] without any apparent due process” declared 100 Venezuelan Bolivar notes (worth around two cents in October of last year) to be completely worthless in December 2016.

This problem was almost certainly compounded by the three highly variable exchange rates Venezuelans must choose from (the elite market, the common market, and the widely used black market).

Last year, the introduction of bond notes helped resolve hyperinflation somewhat but did nothing to fix the limited availability of currency. According to d’Anconia, daily withdrawal limits are still in place, and (depending on the bank) those limits could either fall even lower (to $30 a day) or banks could close their ATMs altogether (now a common practice).

“Zimbabweans can expect to wait 4 hours or more to process a single withdrawal.” | Frisco d’Anconia | Crypto Coin News

Remember, these aren’t the only examples of hyperinflation throughout history.

If you remember seeing wheelbarrows filled with cash from the Weimar Republic following World War I, you should be able to recognize just how quickly an economic problem like this can turn into a social, global, and political disaster.

That is not to say that Bitcoin (and other cryptocurrencies) currently possess optimal economic scaffolding.

As Forbes notes, cryptocurrency transaction fees can vary widely and (in the case of Bitcoin) are “far too high” to benefit developing nations. Platforms like BitSquare are free and decentralized, and there are not obvious transaction fees. However, banking fees and currency conversions will still eventually cost the buyer.

On the other hand, for some developed nations, Bitcoin is viewed as “too volatile”.

However, BTC News reports that “cryptocurrency has already proven its capabilities in the African continent by making financial services accessible to the unbanked and underbanked”.

Is Cryptocurrency Dangerous for National Economies?

A number of cryptocurrency critics, including economists and government officials, are weary of a hypothetical flaw in blockchain technology (the process that dictates cryptocurrency transactions) called a “51% Attack”. There is also a worry that quantum computers will present a security danger to cryptocurrency systems, but this is also still a hypothetical.

According to Investopedia, this attack leaves market participants open to:

“miners controlling more than 50% of the network’s mining hashrate, or computing power. The attackers would be able to prevent new transactions from gaining confirmations, allowing them to halt payments between some or all users. They would also be able to reverse transactions that were completed while they were in control of the network, meaning they could double-spendcoins.”

Even though this attack is still theoretical–other similar hacks have been executed using Bitcoin in the past. As Joo Ian Wong, technology reporter for Quartz, remarks:

“The history of bitcoin exchanges is Darwinian, marked by abrupt failures triggered by security breaches. If you run a big bitcoin exchange, it’s usually a question of when, not if, your defenses will be breached.”

However, many cryptocurrencies have created potential workarounds to safeguard against excessive mining.

In fact, Coin Market Cap currently shows 380 cryptocurrencies that are “not minable”. Only 16 of the 824 known cryptocurrencies have been significantly mined in the past.

Still, there are several possible solutions for improving global cryptocurrency security measures including:

Cryptocurrency brand partnership with World Bank

UN protections on blockchain technologies

Cryptocurrency brand creation for government entities

Because the World Bank works largely with poor and developing countries, what this partnership could mean is that instead of working on an individual competitive scale for currency rates, these developing countries could pool their currency values and participate in a fairer economic market.

Could Cryptocurrencies Prevent Brexit?

In addition to assisting developing nations to stabilize their currency, cryptocurrency could ease or prevent international conflicts.

However, that proposed rollout appears to have been either delayed or canceled altogether. Right now, there are only two Bitcoin ATMs available in all of Greece, according to Bitcoin ATM Radar.

In fact, The Guardian reports that negotiations between Athens and their creditors have come to a grinding halt. AsHelena Smith reports that:

The possibility of Grexit, or euro exit, has re-emerged and bond yields have soared. The yield on two-year Greek government bonds has risen from 6% to 10% in less than two weeks as spooked investors have dumped their holdings. And the shrill rhetoric last seen at the height of the crisis in 2015 has returned.

As in the case of Zimbabwe, Argentina, and Venezuela, Greece could potentially pull itself back from the brink of disaster by incorporating cryptocurrency into their economy.

Since negotiations are at a standstill, working with the World Bank & the United Nations to set guidelines on the usage of cryptocurrencies could very well spell a fresh start for Greece’s the Grecians’ turbulent economic and social climate.